Travel notes: Chiang Mai
Meeting Marc Faber, a FinTwit contact and thoughts on Thai consumer brands. Estimated reading time: 8 minutes
Disclaimer: Asian Century Stocks uses information sources believed to be reliable, but their accuracy cannot be guaranteed. The information contained in this publication is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. You are advised to discuss your investment options with your financial advisers. Consult your financial adviser to understand whether any investment is suitable for your specific needs. I may, from time to time, have positions in the securities covered in the articles on this website. This is not a recommendation to buy or sell stocks.
I just spent a few days in the Northern Thai City of Chiang Mai.
While technically on holiday, I also took the opportunity to learn more about some of the companies I’ve discussed on Asian Century Stocks. I also met with two investors, including Marc Faber, who has lived in Chiang Mai since the early 2000s.
Backdrop
Chiang Mai is Thailand’s second-largest city, with a population of 1.8 million. Compared to Bangkok, it’s less busy and less touristy. We found people around us to be friendly and welcoming.
What I did not understand prior to this trip is that Northern Thailand is culturally distinct from the South. As you can tell from the following chart, Chiang Mai and surrounding areas were historically part of the Lanna Kingdom, with its own language and writing system.
In 1774, Thailand helped free Chiang Mai from its then-Burmese captor. And eventually became integrated into the Thai nation. But had history turned out differently, Lanna might have remained a separate kingdom.
For a region that’s at the crossroads between China, Burma, Laos and central Thailand, it’s surprising how little trade takes place in Chiang Mai. It seems to be a centre for agricultural trade. But not much beyond that. None of Thailand’s largest companies are based in Chiang Mai.
It is a major tourist destination, though. Visitors worldwide come to Chiang Mai to visit temples, eat Northern Thai cuisine, and try the many nearby hiking trails.
My girlfriend and I were shocked at the lack of tourists. Our local guide explained that after the initial bout of revenge spending after COVID-19, tourists had been few and far between.
While Thailand’s tourist arrivals are just ~1/4 below the pre-COVID levels, the Chinese have been mostly absent due to flight capacity and visa issues. We hardly saw any mainland Chinese at the boutique hotel we stayed at. Hopefully, this will change now that Thailand has finally removed the visa requirement for Chinese nationals.
I was curious to see how much of an inroad Chinese automakers had made in Thailand, given the success they’d had in countries like Spain and Mexico. However, the vast majority of the existing stock of vehicles were still Japanese petrol cars or hybrids.
Shanghai Auto’s “MG” brand was by far the most common among the Chinese brands. Occasionally, we saw electric vehicles from BYD (1211 HK - US$92 billion) and Great Wall’s Ora brand (2333 HK - US$24 billion). A BYD Seal sedan with a ~500km range (pictured above) costs around THB 1.4 million, equivalent to roughly US$38,000. I understand there is an EV subsidy, but it’s modest at just THB 150,000.
Major Cineplex
One of the evenings, we visited the Central Festival Chiang Mai shopping mall, just a few minutes away from Chiang Mai’s old town. It’s owned by property developer Central Pattana (CPN TB - US$7.8 billion), a subsidiary of Thailand’s Central Group. It was an impressive mall － up there with the best shopping malls I’ve seen in Singapore or Hong Kong.
Across the road from Central Festival Chiang Mai, we spotted a high-rise development built by Thai family-owned developer Supalai (SPALI TB - US$1.1 billion). This condo is called Supalai Monte II and has decent Google Reviews scores.
On Central Mall’s 5th floor, we found a large cinema run by Major Cineplex (MAJOR TB - US$335 million). I was impressed. The lobby was tastefully furnished, and the e-ticket machines worked beautifully. It was better than any cinema I’ve been to in Singapore. We got 2x tickets to Agatha Christie's classic The Haunting in Venice for THB 160 each (around US$4.3).
But the cinema was also surprisingly empty. No queues in the cinema lobby and few people around. I counted 20 individuals in the movie theatre out of roughly 200 seats. And this was for an 8:00 p.m. screening.
Another surprise was that it took 25 minutes of advertising before the movie started. Major Cineplex is clearly milking its captive audiences as much as possible.
Before the movie started, there was also a 2-3 minute tribute to the Thai King. In the past, Thais have always stood up during this ceremony. But this time, we only saw a handful of people stand up.
Visiting Marc Faber
I’ve exchanged emails with Marc Faber in the past, and on this trip, he was gracious enough to invite us to his home along the Ping River.
We arrived at his house at 9.00 p.m., with darkness outside and dogs barking at us. Suddenly, at the door stood Faber, in a casual shirt, welcoming us to his office where he writes the Gloom, Boom & Doom Report once a month.
Over Chang beers from Thai Beverage’s (THBEV SP - US$11 billion), we discussed his life and his views on markets. I’ve previously written about Thai Beverage and was surprised to hear that Faber sometimes got headaches after drinking them, perhaps due to the addition of pure alcohol rather than through the more natural process of fermentation.
Faber came to Chiang Mai to seek a quiet life after a 30-year career in Hong Kong. He managed to buy a beautiful plot of land from a bank amid the Asian Financial Crisis and built several properties on it. Since then, property prices have gone up significantly.
I asked about the meltdown in the US Treasury bond market. Faber believes that the stimulus unleashed during COVID-19 created excess liquidity that continues to circulate in the system. He thinks it’s impossible to say this excess liquidity will stay. From that perspective, is a 4.5% yield on the 10-year treasury bond the wrong price? He felt that sticking to cash or bonds with shorter maturities was more prudent at the present time.
We also discussed Hong Kong equities. Faber thinks they’re cheap. Despite everything that’s happened since 2020, Hong Kong remains a financial hub that’s hard to beat in terms of convenience. Where else can you get from downtown to the airport in less than 30 minutes?
The only caveat Faber had is that he hasn’t seen much insider buying this year. This might be one of the first downturns in a long time when many insiders are bearish on the companies they run.
A FinTwit get-together
At a swanky Thai-Western fusion restaurant, we met American investor David Orr, who lives in Chiang Mai and writes on Twitter with the user name @orrdavid.
He was a professional poker player ranked as one of the top 30 in the world. While it provided a decent living, the game got progressively harder over time. Instead, he shifted his attention to the stock market, which he described as infinitely easier thanks to many misinformed counterparts.
David now runs money using a diversified long/short portfolio with variable but typically high gross exposure. He invests across regions, including his home country of the United States and the Asia-Pacific region, including some Japanese names.
He believes the US home prices will come down due to weak affordability. But he thinks the market misunderstands US home builders, which should do decently well as existing home sales has dried up and people still need homes.
He was even more bearish on private equity as an industry dependent on low and falling interest rates and unrealistic valuation marks. And the fact that NAV loans are now done at high teen interest rates suggests that private equity funds are getting desperate. In his view, the European ones are particularly vulnerable.
I highly recommend David’s Twitter account. He looks for asymmetry － situations where the cards are stacked in his favour. And he’s exceptionally generous with his ideas, on top of treating us to one of the best meals we’ve had in Thailand.
Conclusion
I’ve been long bullish on the potential for the Thai cinema industry to recover from COVID-19. However, the weak foot traffic we observed at Major Cineplex (MAJOR TB - US$335 million) in Chiang Mai will probably keep me from buying more shares.
I want to learn more about property developer Supalai (SPALI TB - US$1.1 billion). It was a core holding of a family office I worked for many years ago. The family is well-regarded, and the company has continued to churn out ~20% return on equity despite a famously oversupplied Thai property market.
The discussions with Marc Faber and David Orr on the current interest rate environment were enlightening. When interest rates rise this much, this fast － something will break, in my personal view.
Whether that something will be European housing markets, the private equity industry or some other asset class, I feel comfortable owning cash right now. At some point, opportunities will present themselves.
